At the February 3rd meeting of his “so-called” economic advisory council, President Trump announced his intention “to be cutting a lot out of Dodd-Frank” and saluted Jamie Dimon, CEO of JP Morgan Chase, saying “there’s nobody better to tell me about Dodd-Frank than Jamie, so you’re going to tell me about it.”
The two men met later that day. Most certainly Dimon privately told Trump about the Durbin Amendment to Dodd-Frank, a provision of the 2010 financial institution reform law that Dimon had publicly despised. Durbin authorized the Federal Reserve to limit the so-called interchange (“swipe”) fees that banks charge merchants (and ultimately consumers) every time payment is made with a debit card. According to the Federal Reserve consumers did that 69.5 billion times in 2015, amounting to $2.56 trillion in purchases.
In 2011 when the Durbin swipe fee cap of 24 cents per debit card transaction went into effect (down from roughly 42 cents), Dimon immediately announced that Chase would recover the lost revenue by charging depositors a monthly fee for using their own money to make payments with a debit card, saying “if you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.”
Bank of America followed Dimon and Chase’s lead, announcing a $5 monthly fee for debit card use and other big banks also quickly fell in line. This cartel-like pattern among the banks provoked op-eds like your blogger’s in the New York Times and a consumer backlash. Soon after, all the new fees were rescinded. The Fed’s 24 cents swipe fee cap was extraordinarily generous given its calculation that the cost to banks averaged 7 to 12 cents. The Fed recently determined that the cost to banks has decreased to a range of 4 to 12 cents.
Banks are prohibited from charging interchange fees in any amount when merchants accept cash or check for payment. The Fed’s first task when created in 1913 was to outlaw check interchange fees, then ubiquitously charged by banks that were suppressing interstate banking and commerce. Debit transactions replace cash and checks and are much faster, safer and cheaper than paper payments for consumers, stores and banks. Therefore, the imposition of any bank fee for debit use is economically perverse. But when debit started to replace cash and checks in the 1980s, banks, acting collectively under cover of their then jointly owned Visa and MasterCard bankcard associations, charged merchants the same fees for accepting debit cards as for credit cards, roughly 80 cents per average transaction. With credit card transactions banks loan money to cardholders and assume the risk of non-payment for the merchant. Not with debit.
A class action lawsuit involving 5 million U.S. merchants was instituted in 1996 to challenge this and other Visa/MasterCard practices. By the time the seven year case ended the average Visa/MasterCard interchange swipe fee was roughly 63 cents. After the case settled in 2003 for $3.4 billion in cash and an injunction valued by the court at upwards of $87 billion, debit fees dropped to an average of 42 cents. Eight years later Durbin lowered the fee to the current 24 cent cap, saving merchants and consumers an additional $40 billion over the last five years.
The Trump invitation to Jamie Dimon presents the banks with an opportunity to repeal Durbin and raise swipe fees to their pre-Dodd-Frank level. President Trump selected a man whose bank has settled and been penalized and fined by federal and state regulators a total of $38 billion for engaging in some of the worst abuses prescribed by Dodd-Frank. That astounding total is second only to Bank of America’s settlements totaling more than $77 billion. Now that the president is taking advice from our metaphorical soda jerk, Jamie Dimon, only Congress and a minority filibuster stand in the way of another massive transfer of money from merchants and consumers to the big banks that Trump railed against during his campaign.